by Al MartinPutin Snookers the West…Again, Or How to Make Money in a “Fear Bid” Driven Market
(4-20-14) The latest Geneva deal between the US, Russia, Ukraine and the European Union is a faux settlement of the Ukrainian issue. Russian Foreign Minister Sergei Lavrov finally gave in to American and European requests to meet his Ukrainian counterparts because Russia had refused to recognize them, but supposedly an accord was reached wherein Russia and Ukraine would act to de-escalate the situation. Russia will pull back the four divisions on the Ukrainian border and Ukrainians will pull back their troops from Eastern Ukraine, where they have been making a drive against pro-Russian militia which had occupied Ukrainian government buildings. The Ukrainians have already started doing so. Of course the reality is that they didn’t have any choice.
At any rate it’s a faux resolution because the Russians aren’t going to keep their end of the bargain.
The only reason the Russians agreed to it was simply to buy more time in order to stretch this thing out. Why? To allow Russian efforts to destabilize the new Ukrainian regime and to get the West who are proceeding with this idea of more sanctions – which Europeans don’t want to support. So by dragging it out, you further drive a wedge between the United States and Europe on this issue.
After all, the United States is the only party that actually wants to increase sanctions. The Europeans on the other hand have really been dragging their feet on this issue. They were ready to give in and agree with the Russians on practically anything in order to prevent joining the United States for sanctions because the Europeans are so frightened of the Russians that when Putin held out even a hint of an olive branch, the Europeans jumped on it.
The Ukrainians jumped at the deal because they were having a hard time dislodging the Russian forces. These so-called pro-Russian militia or Russian thugs are really Russian Spetznaz, the special forces or the Russian equivalent of the Green Berets, who are wearing Russian-made uniforms which simply have the insignias taken off them. The Ukrainian military really doesn’t have the ability to do anything. There has been heavy knock down drag out fighting in the last 48 hours in Ukraine and the Ukrainian military has not been able to dislodge these Russian forces.
The only concern anyone really has, including Putin himself, is how this impacts global markets. There is no other political, social or human rights concern. It’s all about how it impacts markets. We saw this on Wednesday and Thursday, April 16 and17, when Gold got hit – as we had been telling everybody it would on our sister site Insider Intelligence.com.
Treasury bonds also got hit hard as we warned of overvaluation. The Dollar reversed its early gains. Equity markets rallied and all of this is tied together to a reduction of the so-called “fear bid.” That’s the only thing anybody is really concerned about -- except probably the Ukrainians themselves who don’t really count in the greater equation. The market impact that this situation fosters is that everyday there is a flexible fear bid which comes and goes or ebbs and flows. This has created dramatic trading opportunities for people like me because it tends to dominate other news flows.
That’s why global volume in equity, commodity and bond markets has increased in the last 30 days. Volatility attracts traders, so when you have a piece of news in this case geo-political or geo-military news, the fear bid it creates dominates markets, pushes out other considerations, news flows and other events. Then suddenly people aren’t as interested in the daily economic calendar or earnings releases since it’s now earning season in the United States and Europe. Now you have one piece of news you can trade off of and it becomes a much easier market to trade.
The move back above 1300 in the Gold was completely bogus and completely based on the fear bid that the Russian-Ukrainian situation was generating. It gave everyone the chance to get short the Gold again – ourselves included – up in the 1325-26 area. You see that this trade this week was worth $40.
The Gold was clearly getting tired in that 1325 area as before. The thing about a fear bid market is that fear bids can only move prices so far and they will move prices up into areas where the items in question being pushed by the fear bid have been turned back before. That’s what the Unwashed don’t understand and that’s what you need for a particular equity bond or commodity, you need that proverbial second shoe to drop – and if it doesn’t, then prices retreat. The fear bid is a daily thing and it lasts as long as the crisis lasts that is propelling it.
The fear bid creates a tremendous trading opportunity for easy trades because you know that this fear bid which in this case is being created by the Russian- Ukrainian situation is going to dominate all other news flows and all other market influences. That’s what makes it such as easy environment to trade.
We were short the Gold contract earlier in the week at 1327 and covered at 1287. That was worth a $40 trade.
Years ago before the Age of Electro Non-Knowledge came upon us, fear bids were regularly traded by a much larger percentage of traders because traders were more savvy at the time. Now that about 90% of the market trades occur based on some sort of upside down chart or graph or some cockamamie trading system that ignores news flows – the wealth that the fear bid market once generated is still generated, but the beneficiaries of wealth are of a vastly smaller pool of people – people like me who understand what a fear market is.
Even institutional money doesn’t benefit from a fear bid market like it once did because so much institutional money, mutual fund money or proprietary (prop) desk money is now traded by these quantum matrix models which are not all that dissimilar from the wannabe individual traders trade and they don’t take advantage of the fear bid because they no longer have people trading even in the institutional world who know anything about anything.
The Age of Electro Non-Knowledge has not only affected individual people in markets but the effect ripples in institutional money trade and bank money trade, since a generation that understood economics and markets has been replaced with a generation that doesn’t.
High Frequency Trading (HFT) is another symptom of looking to make money without having to know anything about markets and economics. We now have endless manifestations of electronic trading, program trading, etc. under this idea that has come in the last 20 years that you don’t have to know anything anymore about economics and markets to trade markets and make money.
In other words, neither so-called human intelligence or artificial intelligence can take advantage of the fear bid. All of the nouveau electro-youngsters -- and some of them aren’t so young since our telephonic trading service has had people in their 60s – have lived their entire life in this electro-world and have never done business with a real bank, a real brokerage firm or a real insurance company so they understand nothing about economics and markets in the real world. And they’ve been doing this since the late 1980s.
The reason that people who make money has been so reduced is that the only people who make money reliably every day trading based on news flows, which in the last analysis is what moves markets. Charts and graphs don’t move markets. It’s about supply and demand fundamentals, changes in interest rates and currencies, etc. The problem is that you have to actually understand something about markets and economics to understand news flows. That’s why every electronic trading service and these electro-seminars and this whole gigantic world of electro-fantasy you see advertising on CNBC and Bloomberg so the first thing the nouveau electro-people are taught is -- don’t look at news flows. Look at what causes price action because in order to understand news flows, you would have to understand something about economics and markets.
The Ukrainian-Russian détente is temporary and will last till Putin makes his next move. Putin will drag his feet and you may have seen statements coming out of the US State Department – well, Putin better act quickly on this accord and hold up his end of the bargain. They’ll be saying that for three or four days and Putin will say – oh yeah I’ll hold up my end of the bargain – but what he’s going to wait for is for another event in Ukraine he precipitates behind the scenes that will give him an excuse to back away from the accord.
This is what the Russians have always done. That’s what makes this so predictable – Russian predictability – because the Russians are acting the same way they have always acted when they were the Soviet Union. It’s the same play book when it comes to Russian hegemonism. They always play it the same way. They instigate. They’re the ones behind the scenes who create the tensions in the first place. Then they agree with someone in Europe or the United States in some sort of so-called de-escalation accord which of course doesn’t happen. What you find out four days later after they’ve agreed to the accord, another event is precipitated in the area of conflict which in fact the Russians have precipitated which gives the Russians the ability to back away from the accord because now Russia is threatened again -- even though it is they who threaten their own interest in order to give them the excuse to back away from the accord.
The Russians even have a word for it – provokatsiya or provocation. What strikes me funny about this is that the Russians are playing out the old playbook with Ukraine the same way they played it out after the Second World War. The playbook is exactly the same -- forced registration of non-ethnic Russians. It was reported that Jewish Ukrainians have to register separately. Now Putin is using the same techniques that Stalin and the Communists used and the Germans used when they occupied Ukraine during the war. Or as Yogi Berra famously said – “It’s déjà vu all over again.”

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.